MBS RECAP: Weaker After European Close, but Mortgages Hold Ground

If we needed any more evidence that the earlier price action had much to do with the spillover from European bond markets, the afternoon trade made it clear.  Immediately following the European close, the positive, slightly volatile trend in domestic bond markets turned into a calm, but resolute sell-off.

The overall damage was minimal--not even enough to take MBS or Treasuries into negative territory.  Fannie 3.0s only lost 3/32nds from the highs in the ordeal.  10yr yields were as low as 2.009 mid-day and rose to 2.037 by the close.

As for the positiveness from the morning hours, the domestic economic data does deserve some credit for helping out the higher-conviction European move.  Durable Goods data was OK at the headline level, but rather weak in every other respect--especially the revisions to last month's data.  Consumer Confidence kept the gloomy econ rolling, coming in at 97.6 vs 103.0 forecast.